US ramps up Lehman probe

I-bank under scanner for role in auction-rate securities market.

Lehman Brothers Holdings is the subject of three federal criminal probes and at least 12 subpoenas of individuals to testify before grand juries, according to a lawyer for the bank, which last month filed the largest bankruptcy in history.

Lead Lehman bankruptcy lawyer Harvey Miller said on October 16 in a federal court in Manhattan that the investigations were launched by New York US attorneys in Brooklyn and Manhattan as well as in Newark, New Jersey. They are focusing in part on Lehman’s role in the $330-billion, auction-rate securities market and possible crimes associated with its $6-billion June stock issue, according to a person familiar with the case, who requested anonymity.

“It’s clear they have given it some urgency and priority,’’ former Justice Department attorney Robert Plotkin said. “Given the notoriety and the headlines, this would be one of the ones that would be on a faster track,’’ said the lawyer, who now handles white-collar defence cases at Richmond, Virginia-based McGuireWooods.

The collapse of Lehman, which sought court protection on September 15, accelerated a global credit crisis that has wiped out $30 trillion of equity value in the past year. The US has begun investigations of mortgage lending, securitisation and failed banks, including New York-based Lehman. The Federal Bureau of Investigation (FBI) is looking into 26 firms, including the American International Group, a senior law-enforcement official said.

“There’s been an outcry from people in the streets and that puts pressure on prosecutors to do something,’’ said Todd Harrison, a former New York federal prosecutor, now with Washington-based Patton Boggs. “They’re going to be looking at all aspects of the credit crisis, including the rating agencies and the mortgage lenders, who packaged and sold securities.’’

The New York Post reported yesterday, without saying where it got the information, that Lehman Chief Executive Officer Richard Fuld, 62, is among the 12 subpoenaed. CNBC, also without attribution, reported former Lehman Chief Financial Officer Erin Callan, 42, now Credit Suisse’s global hedge fund chief, was subpoenaed as well.

Fuld’s lawyer, Patricia Hynes of London-based Allen & Overy, declined to comment. Callan didn’t return calls seeking comment.

“It could be an early notice to him not to destroy any documents, obstruct the investigation or talk to witnesses out of school,’’ Plotkin said of the reported subpoena of Fuld. “They also might want to get him in there and nail down his story before he has a chance to talk to advisers.’’